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2014 (12) TMI 982 - SC - Companies LawSick company - Jurisdiction of BIFR - Jurisdiction of civil court to entertain recovery suit when the matter is pending before BIFR - Ambit and scope of section 22(1), 26 and 32(1) of Sick Industrial Companies (Special Provisions) Act 1985 - Though the scheme was initially sanctioned for reconstruction, the BIFR subsequently held the scheme to have failed and directed the company to be wound up. - Held that - After a reference is registered by the Board, all throughout the subsequent stages, the BIFR has complete supervisory control over the affairs of such company till it is revived or the decision to wind up such company is taken. In our view, the ambit and extent of such control means and includes determination of such measures to achieve revival of the sick company and to check whether by such measures the revival is being achieved or not. This must cover the power to decide at any stage subsequent to the registration of reference under Section 16 whether such company has ceased to be sick company or not. Cessation of the status as a sick company can be under Section 17(1) or as a result of scheme for revival being implemented and determination of such issue, in our view, is in the exclusive domain of the BIFR. The Civil Court was not right and justified in issuing injunction as it did. The counsel who represented the company before the BIFR on 04.04.2013, correctly submitted that before discharging the company the BIFR can examine the audited balance sheet and satisfy itself whether the net worth had turned positive. Insofar as the recovery of money is concerned, the matter is completely covered by Section 22(1) - The language employed in Section 22(1) of the Act refers to the entirety of the period beginning from the inquiry under Section 16 till the implementation of sanctioned scheme for revival - the BIFR was considering Draft Rehabilitation Scheme which is a stage u/s 18(3) and is completely covered by the period u/s 22 of the Act - The suit as framed for recovery of money filed without the consent of the BIFR was not competent and maintainable relying upon Managing Director, Bhoruka Textiles Limited Vs. Kashmiri Rice Industries 2009 (5) TMI 546 - SUPREME COURT OF INDIA the suit insofar as it relates to the claim for recovery of money, could lie or be proceeded with only after express consent of the BIFR. Whether BIFR ceased to have jurisdiction over the company and that all the proceedings in the BIFR after filing of the positive balance-sheet - Held that - We leave it to the BIFR to satisfy itself and determine the issues whether the net worth of the company has turned positive or not. If the BIFR is so satisfied, it shall de-register the company and upon such declaration the company will be out of the supervisory jurisdiction of the BIFR under the Act. Needless to say that if the BIFR is not satisfied that the net worth of the company has turned positive, it shall go ahead and consider the scheme for revival of the company. Since in our view the company continues to be a sick company and it was not competent for anyone except the BIFR to determine whether the net worth of the company had turned positive, we hold the sale of Katihar property effected by the company without express leave or permission of the BIFR to be questionable. However, since the transferee of that property is not before this Court we relegate this matter for appropriate assessment by the BIFR after issuing due notice to the transferee. We also leave it to the BIFR to consider and assess whether there was any necessity or expediency to sell the property in question. - Decided in favor of petitioner.
Issues Involved:
1. Jurisdiction of BIFR over a company once declared sick. 2. Competence of Civil Court to declare a company no longer sick. 3. Validity of civil suits for recovery of money against a company under BIFR without its consent. 4. Sale of company assets without BIFR's permission. 5. Costs and penalties for non-disclosure of material facts. Detailed Analysis: 1. Jurisdiction of BIFR over a company once declared sick: The Supreme Court emphasized that the jurisdiction of the Board for Industrial and Financial Reconstruction (BIFR) over a company continues until it is formally discharged by BIFR, either after the net worth of the company turns positive due to successful implementation of a revival scheme or by an order of winding up. The BIFR alone has the competence to declare a company no longer sick and discharge it from the purview of the Act. The Court highlighted that the BIFR has complete supervisory control over the affairs of a sick company from the stage of registration of reference until its revival or winding up, and this includes determining whether the company has ceased to be sick. 2. Competence of Civil Court to declare a company no longer sick: The Supreme Court held that the Civil Court lacks jurisdiction to declare a company no longer sick and to decide whether the BIFR has lost jurisdiction over the company. The Court stated that any assertion or claim that a company has revived itself must be dealt with by the BIFR. The suit seeking such a declaration was deemed not competent and maintainable. The Court emphasized that the BIFR alone can determine whether the net worth of a company has turned positive and whether it should be discharged from its jurisdiction. 3. Validity of civil suits for recovery of money against a company under BIFR without its consent: The Supreme Court reiterated that under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, no suit for recovery of money or enforcement of any security against an industrial company can lie or be proceeded with without the express consent of the BIFR. The suit filed without such consent was deemed not competent and maintainable. The Court referred to previous judgments, including Managing Director, Bhoruka Textiles Limited v. Kashmiri Rice Industries and Raheja Universal Limited v. NRC Limited, to support this view. 4. Sale of company assets without BIFR's permission: The Supreme Court held that the sale of the Katihar property by the company without the express leave or permission of the BIFR was questionable. The Court directed the BIFR to assess the necessity and adequacy of the sale and to take appropriate action, including possibly confirming the sale or requiring the transferee to make good any deficit if the sale value was found inadequate. 5. Costs and penalties for non-disclosure of material facts: The Supreme Court imposed costs of Rs. 5 lakhs on the original plaintiff for non-disclosure of essential facts, such as seeking consent from the BIFR and the BIFR's ongoing consideration of the company's net worth. The costs were to be deposited within three months to the Supreme Court Legal Services Authority, failing which contempt action would be initiated. The Court refrained from imposing costs on the company due to its status as a sick company. Conclusion: The Supreme Court allowed the appeals, set aside the High Court's order, and held that the Title Suit No. 166 of 2013 was not maintainable insofar as it sought to declare the company no longer sick. The company was directed to remain under BIFR's jurisdiction until BIFR was satisfied that the net worth had turned positive. The BIFR was directed to complete this assessment within two months. The Court also addressed the sale of the Katihar property and imposed costs on the original plaintiff for non-disclosure of material facts.
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